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Determining how much it costs for workers compensation insurance is not as easy as using a Name-Your-Price Tool. Your bottom-dollar premium(price) for cheap work comp insurance is the solution (answer) to a workers comp premium equation that requires five steps to construct.
The first step in constructing a workers comp premium equation is to identify the job classification code(s) associated with the job duties performed by your employees as designated by the National Council onCompensation Insurance.
The NationalCouncil on Compensation Insurance (NCCI) is a non-profit organization providing advisory guidance to most workers compensation insurance companies and states’ Division of Workers Compensation. NCCI is recognized by many as the de facto governing authority within the workers compensation industry. The organization provides leadership and administration to their organization’s participants on a variety of worker’s compensation insurance matters including:
Through NCCI’s guidance, almost every job performed in theUnited States has been assigned a unique four-digit job classification code. Those codes, along with the definitions of the duties they are assigned to, are widely recognized and accepted by the organization’s participants and others within the workers compensation industry. There are more than 700classification codes. NCCI publishes the entire directory of job classification codes in its Scopes® Manual.
Once you have correctly identified the job classification code(s) associated with the job duties performed by your employees, you need to determine the worker’s comp insurance company’s cost-per-hundred rates assigned to those job classification codes
In addition to maintaining the Job Classification Codes,NNCI analyzes a wide range of data streams interrelated to the job duties represented by the codes. From this effort, NCCI recommends insurance premium pricing reflective of the cost-of-injury data associated with each code. Their pricing recommendations are designed to support a fair and sustainable workers compensation industry for employers and the workers compensation insurance companies that insure them.
Workers compensation insurance companies, with oversight and final approval from state insurance commissioners’ offices, utilize NCCI’s pricing guidance to develop the pricing they will use to compete in the marketplace. The pricing insurance companies develop is referred to as their cost-per-hundred worker comp insurance rate(s). The term cost-per-hundred reflects the fact that the rate is applied against each $100 of employee payroll. (See Your Payroll) Each workers compensation insurance carrier will compete in the marketplace using their own uniquely developed cost-per-hundred rates. They will assign a separate rate to each job classification code. Insurance companies do not want to price themselves out of the marketplace, so generally, market rates are competitively similar.
Your workers compensation carrier’s cost-per-hundred rate(s)becomes the first numerical value within the work comp premium equation used to determine your estimated annual standard premium.
The third step in constructing a workers comp premium equation is to compute your annual payroll factored down by 100 (payroll divided by 100) for each job classification instep two.
This number becomes the second value within the worker’s compensation premium equation. Your payroll is factored down (divided) by 100 to adjust for the fact that the insurance carrier’s rates are applied to each $100 unit of employee payroll. Here’s an example:
The fourth step in constructing a workers comp premium equation is to obtain your company’s workmens comp Experience Modification Factor. Your Experience Modification Factor (EMF) is the third value in the workmen’s compensation insurance premium equation.
Your Experience Modification Factor value represents your company’s worker’s comp claims history compared to your industry’s average worker compensation claims history. It acts asa multiplier against your manual workers compensation premium to calculate your modified workmen’s comp insurance premium.
An Experience Modification Factor value is also a solution(answer) to a mathematical equation. NCCI calculates this equation. Several elements are built into the equation, but ultimately the value represents whether a company’s workmen’s compensation claims history is better or worse than its competitors.
An Experience Modification Factor value of 1.0 always represents an industry’s average or anticipated workers compensation loss experience. When multiplied against a manual premium, there is no impact on the modified premium.
When a company’s workmen’s comp loss history is lower than its industry’s average, its Experience Modification Factor value will be less than1.0. When multiplied against its manual workers compensation premium, the modified work comp premium will be less than the original manual worker’s comp premium. The company is essentially rewarded for its efforts to reduce workplace injuries.
When a company’s work comp losses are higher than its industry’s average, the Experience Modification Factor value will exceed1.0. In short, this company is penalized with a higher premium. The penalty incentivizes the employer to reduce workplace injuries.
To calculate a reliable Experience Modification Factor value, NCCI needs several years of work comp claims and premium history. In most cases, an employer who has had workcomp premium over $2250 for three consecutive years or a combined $4500 in premium for the past two years can expect to receive an Experience ModificationFactor from the NCCI.
Maintaining a low Experience Modification Factor will help you get the cheapest workers compensation insurance.
The final step in constructing a workers comp premium equation is to negotiate any discounts, credits or debits available from your workers’ comp insurance carrier for premium volume and favorable safety practices.
Workmens compensation insurance carriers can, if nudged, apply a variety of discounts, credits, and debits that reflect their desire to compete for your workmens compensation business. (At CheapWorkComp.com, we know how to nudge.) Types of discounts available include:
So, here’s what all this looks like:
$7.45 x $3,000 = $22,350
$22,350 x .92 = $20,562
$20,562 x 5% = $1,028
$20,562 – $1,028 = $19,534*
So, there you have it. The cost of your worker compensation insurance is $19,534*. Full disclosure, there are a few minor items we’ve skipped over so you wouldn’t go into a coma reading all this. Some of those items are state-specific and can have a significant impact on your final workmans comp rate. The rest of the things we've skipped are relatively insignificant to your overall workers compensation insurance rate. If you want to know what it will cost for cheap workers compensation insurance, just call us. We’ll do all this work for you. Remember, we’re experts. Cheap workers comp insurance is all we do.
*Items we’ve skipped from this equation include terrorism charges, expense constant fees, increased employers liability surcharges, state-specific surcharges.